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NORTH KINGSTOWN — With coastal homeowners losing out on insurance claims because of rising deductibles, a special commission of the Rhode Island House of Representatives is urging citizens to become smarter consumers when it comes to choosing their insurance provider and to stay away from 5 percent deductibles.
Last week the House Commission, composed of coastal representatives, held a meeting at the State House addressing the thousands of Rhode Islanders within the last two years who have lost out on damage claims from major storms.
And, within the last 18 months, the Commission studied how insurance companies have kept homeowners unaware of rising deductibles – so high that their insurance policies may no longer cover their homes in the event of storm damage.
An insurance policy deductible is the portion of any claim that is not covered by the insurance provider, and must be paid by the insured before the policy’s benefits will apply.
Rep. Patrick Shanley (D-South Kingstown) explained that many of his constituents are under the assumption that their insurance deductibles are a percentage of each claim, when in fact they’re a percentage of the insured value of their home.
“A lot of people believe it’s a deductible on the amount of damage, and it’s not,” said Shanley. “It’s a deductible on the value of your house.”
Last year, the General Assembly passed bills that limited deductibles to 5 percent of the value of a home and mandated that insurance companies provide more details on how their deductibles work.
Over the last 18 months, the commission asked the state’s Superintendent of Insurance Joseph Torti to address the insurance problem and to come up with new regulations for insurance companies to adhere.
“In that time we learned a lot about the insurance business,” said Shanley, who was elected commission chairman to replace the late Paul Crowley.
“We’ve been hard at work since the passing of the two bills,” said Torti. “We’re working on a list of mitigation measures that should work in Rhode Island.”
Torti and the Department of Business Regulation published new regulations in Insurance Bulletin Number 2007-9 in November. Those regulations will go into effect on July 1.
Along with limiting deductibles and requiring clear descriptions of policies, the new regulations also require any company that increases premiums due to re-insurance costs to provide a complete explanation of those costs to the insured.
Torti said the commission is also working on regulations that would require insurance companies to show homeowners how to reduce storm damages, thereby lowering deductibles. Such measures would include installing roof tie-downs, installing plywood storm shutters, or installing foundation anchors.
Shanley said many of his constituents don’t realize that a 5 percent deductible can mean the difference between whether or not someone’s house gets fixed.
To explain the impact of a 5 percent deductible, Torti said if a $200,000 house with a 5 percent deductible gets hit with $10,000 worth of damages, the insurance policy won’t pay for any of the repairs because the deductible applies to the value of the house. Under this example, if the deductible applied to the damage and not the house – which Shanley said is where many people make the mistake – the deductible would only be $500.
“I personally think allowing 5 percent is ridiculous,” said Rep. Bruce J. Long, R-Jamestown.
Legislators said that although deductibles went up as high as 5 percent – largely in the aftermath of Katrina – there are still insurance companies offering coastal insurance with reasonable premiums.
Rep. Brian Kennedy (D-Hopkinton) advised homeowners who have policies with 5 percent deductibles to look at other policies, because he said many companies offer lower percentages or flat-rate deductibles.
Torti said the new regulations were “only meant to apply to homeowners” and that the next step for the commission would be to take into account this same issue with commercial properties.
Local representatives Donald J. Lally Jr. (D-Dist. 33, South Kingstown, North Kingstown, Narragansett), Joseph H. Scott (D-Dist. 39, Charlestown, Exeter, Richmond), and Laurence W. Ehrhardt (R-Dist. 32, North Kingstown) were also part of the commission.
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